Abstract: he current thesis starts the discussion of the knowledge economy and of the possible catching-up paths for the small countries from the new synthesis of the literature on techno-economic paradigms, clusters, global value chains, foreign direct investments, etc. In doing so, I pay special attention to constraints that the smaller catching-up economies face in the modern world. As a result of this new synthesis, an analytical framework has been proposed that assumes that all technologies and economic activities are necessarily not the same in terms of their potential contribution to the socio-economic development. It also acknowledges the fact that the starting points of the different countries are very different and that actual policy-making always takes place in the context of limited resources. It proposes a comprehensive analytical framework for the priority-setting in innovation policy.

At the more practical policy-making level, both Estonia’s starting point and the possible future development scenarios are analysed extensively in the thesis. Both the sources of Estonia’s recent economic growth and the main future challenges are mapped in a broad socio-economic perspective. As a result of the above, three distinctly different scenarios present themselves for the future economic development in Estonia, each of which also presupposes distinctly different business strategies and public policies.